The Use of Offshore Companies in Emerging Market Economies: A Case Study
Posted: 5 Apr 2017
Date Written: January 2, 2017
Companies registered in offshore jurisdictions play a persistent role in the intermediation of financial flows in and out of emerging market economies. There are competing explanations for the use of these structures; narratives include, at one end of the spectrum, the role of tax evasion and the laundering of criminal activity, and at the other, the legitimate quest for better institutions to reduce transaction costs and protect assets from predatory home governments. Drawing on publicly available English court proceedings, this Article examines how offshore companies were used in the specific case of BTA Bank of Kazakhstan versus Mukhtar Ablyazov. The case involved hundreds of offshore companies, extended corporate services supply chains, multiple nominee directors, and successive ostensible “ultimate beneficial owners.” Beyond the particular outcome of the proceedings, it examines how the offshore structures were administered, how concealment of beneficial ownership was achieved, and the type of transactions that were performed through them. On a wider level, the Article argues that the offshore corporate law model creates information asymmetry that is difficult to regulate ex post. It suggests that if the persistence of offshore company use is indeed a consequence of weak governance and institutions in emerging market economies, private law reform to reduce information asymmetry may have to be considered in addition to public law measures such as registries of beneficial owners. This would include reforming the role of registered agents for them to gain greater knowledge about the activities of the companies, reinvigorating the individual office of the company director, restricting corporate entity directorship and conferring greater fiduciary and private law accountability to natural person participants. The Article concludes by identifying other axes of research in this field, which include questioning the quasi-unconditional recognition at present of foreign companies in conflicts of laws, and gaining a better understanding of the place of political risk mitigation in the quest for anonymity.
Keywords: offshore companies, comparative corporate law, Ablyazov, nominee directors, ultimate beneficial owner, anonymity, political risk
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